Conventional Mortgage Financing

Is a Conventional Mortgage right for you?

Benefits and Considerations

Conventional mortgages can be obtained when you meet the underwriting and funding criteria of Fannie Mae® and Freddie Mac®. Conventional mortgages are ideal for home buyers with excellent credit and can pass the general guidelines for Debt to Income Ratio and having the minimum down payment.

Conventional loans can be fixed-rate or adjustable-rate mortgages and the options come in a variety of loan terms. They are available for primary residences, vacation homes and investment properties. The underwriting guidelines vary for each occupancy type, with larger down payments required for vacation and investment homes.

Unlike FHA loans, conventional mortgages base their mortgage insurance requirements almost exclusively on loan-to-value. If you are putting 20 percent or more down you will not have mortgage insurance.

For many would-be homebuyers, conventional mortgage financing presents the best value mortgage loan, especially if you are putting 20 percent or more toward a down payment and have strong credit.

Conventional loans are for primary residences only, if you want to finance a second home or investment property, you will need to use conventional mortgage as FHA, VA and USDA loans.

As mentioned above, conventional loans offer a variety of loan terms. Your loan term combined with the down payment amount plays a major part in the total amount of mortgage interest you will pay over the life of the loan.

Here’s a hypothetical life of the loan example:

350,000 loan amount

Excellent credit (above 740)

20% down payment

Payments do NOT include property taxes or insurance

On a 30 year fixed rate mortgage with a 4% interest rate:

Monthly payment – $1,671

Total interest paid – $251,543

On a 20 year fixed rate term at a 3.75% interest rate:

Monthly payment – $2,075

Total interest paid – $148,025

On a 15 year fixed rate at 3.25% interest rate:

Monthly payment – $2,459

Total interest paid – $92,681

You might of noticed that the same interest rate was not used for all the scenarios. In general, the shorter the loan term the lower the interest rate.

You will almost always see 15 year fixed rates are lower than 30 year fixed rates.

Similarly, rates for investment properties and second homes will also be higher than those of a primary residence.

It’s all about risk with conventional mortgage loans.

You should understand the risk factors that are used with risk-based pricing behind the mortgage rate that you can obtain as we have discussed above, but here’s a more comprehensive list:

NOTICE TO TEXAS CONSUMERS: COMPLAINTS REGARDING THE SERVICING OF YOUR MORTGAGE SHOULD BE SENT TO: THE DEPARTMENT OF SAVINGS AND MORTGAGE LENDING, 2601 N Lamar, Suite 201 Austin, TX 78705. A TOLL-FREE CONSUMER HOTLINE IS AVAILABLE AT 1-877-276-5550.